Microsoft’s stock price plummeted last week, experiencing its largest single-day drop as March 2020-a staggering 11% decline on thursday before partially recovering to end the day down 10%.What triggered this dramatic downturn, and what should investors anticipate moving forward?
The tech giant released its fiscal second quarter earnings report on Thursday morning, covering the period ended December 31, 2025. Initial reactions should have been positive, as revenue reached $81.3 billion-a 17% increase year-over-year-and diluted earnings per share jumped 60% to $5.16.Operating income also saw a healthy 21% rise, landing at $38.3 billion. Both sales and earnings figures surpassed analyst expectations.
Cloud Growth Didn’t Meet the Mark
Though, investors zeroed in on capital spending and cloud sales growth, overlooking the positive headline numbers. Capital expenditures surged 66% from the previous year, totaling a considerable $37.5 billion-exceeding analyst estimates of $36.2 billion. Revenue from the Azure cloud computing unit, a key indicator of artificial intelligence (AI) demand, grew by 38%.
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While a 38% increase in cloud revenue sounds impressive,it barely met analyst expectations.More concerningly, the growth rate decelerated compared to the previous quarter. Furthermore, the projected sales growth for the current quarter is between 37% and 38%, falling short of Wall Street’s more aspiring forecasts.
This combination of increased capital expenditures and cloud revenue growth painted a disappointing picture for investors, who anticipated a greater return on investment. This ultimately fueled the sharp decline in the stock price.
Broader Market Expectations at Play
Investor expectations surrounding AI investments are currently exceptionally high, as evidenced by the important gains in shares of the “Magnificent Seven” tech stocks in recent years.These companies are investing billions in AI data centers, research and development, and supporting infrastructure. Wall Street, known for its impatience, is eager to see a corresponding increase in revenue and profits from these substantial capi
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